Graham v Valuer General of New South Wales

[2006] NSWLEC 566

Land and Environment Court

of New South Wales

CITATION:

Graham v Valuer General of New South Wales [2006] NSWLEC 566

PARTIES:

APPLICANT
Keith James Graham

RESPONDENT
Valuer General of New South Wales

FILE NUMBER(S):

31072 of 2005

CORAM:

Hoffman C

KEY ISSUES:

Valuation of Land :- Heritage item on property, section 14G of Land & Valuation Act 1916

LEGISLATION CITED:

Lismore Local Environmental Plan 2000
Land and Valuation Act 1916
Development Control Plan No.7 - Flood Prone Lands

CASES CITED:

Maurici v Chief Commissioner of State Revenue [2003] 212 CLR 111 ;
AMP Henderson Global Investor Ltd v Valuer General [2004] 134 LGERA 426

DATES OF HEARING:

17/07/2006

 
DATE OF JUDGMENT: 

09/08/2006

LEGAL REPRESENTATIVES:

APPLICANT
Mr K Graham, solicitor
Of: Grahams Solicitors

RESPONDENT
Mr J Maston, barrister
Instructed by Mr P Rankins
Of Crown Solicitors Office

JUDGMENT:

THE LAND AND
ENVIRONMENT COURT
OF NEW SOUTH WALES

Hoffman C

8 September 2006

31072 of 2005 Keith James Graham v Valuer-General of NSW

JUDGMENT

1 This is a Class 3 Appeal No. 31072 of 2005 between Keith J Graham and the Valuer-General of New South Wales in regard to the amount of $227,000 fixed as the valuation Base Dated 1 July 2004, for property known as No. 22 Woodlark Street, Lismore.

2 The property has on it a late 1800’s 2-storey brick building with a 3-storey tower, and is classified as a Heritage Item of “State Built” significance under the Lismore Local Environmental Plan 2000. The building is known as the Graham Centre, and is currently used as offices for lawyers and real estate agents plus three (3) residential flats.

3 It was originally built in 1891 as an Australian Joint Stock Bank Chamber and Manager’s Residence with a stable and loft and a small yard at the rear. The stable is now 2-storey offices with the rear yard a private carpark.

4 The heritage study says in part:

“Excellent example of Late Victorian commercial building, now rare in the locality. Good example of the work of the distinguished architectural practice of Sulman and Power. Probably the oldest commercial building in central Lismore which is able to be dated with certainty…….”

5 The building is in very good condition, especially the banking chamber although modern partitioning has been installed. Extensive use of local cedar adds to the quality of the interior.

6 The valuation was carried out under s. 14G of the Land and Valuation Act 1916 as amended. The clause is for land that is subject to heritage restrictions under a planning instrument.

The Site

7 The site, the subject of the valuation is on the corner with Molesworth Street, one of the main intersections of the CBD of Lismore. It is Lot 2 DP 554707 with an easement in DP 1008450, City of Lismore, Parish of Lismore, County of Rous. The easement is for minor encroachments of an adjoining building

8 The land is rectangular with a small out-dentation on its eastern side to accommodate the building on the subject site. The dimensions are approximately 45 m by 18 m giving an area of 847.3 sq m. The land is flat and has a council carpark at the rear in addition to its own private car park. As is the whole of the Lismore CBD, the land is flood prone, and the public car park doubles as a floodway to drain backed-up flood waters to the east of the CBD.

9 The land is zoned 3(a) Business in the Lismore Local Environmental Plan 2000. Under Development Control Plan No.7 - Flood Prone Lands, it is designated “CBD Flood Liable” on the floodplain management plan.

The Issues

10 The respondent summarised the questions before the Court as:

1. What is the value of floor area of buildings in comparative heritage sales.

2. What do heritage sales indicate for land value.

3. In referring to non-heritage sales, do they reveal an appropriate “discount” for heritage sales.

11 The respondent’s evidence was given by Mr. R Southgate, Registered Valuer NSW No. 3050.

12 The applicant’s evidence was given by Mr. P Tsikleas, Australian Institute of Valuers’ Registration No. 2537.

The Evidence and conclusions

13 The issues concerning the disagreement between the valuers revolved around the reduction effect on the land valuation caused by the heritage item on the site compared to other properties that had no heritage items.

14 Both agreed depending on the location in the CBD, non-heritage listed properties had land values roughly between $300 and $500 per sq m depending on their location in the CBD. Mr Southgate put the land value of the subject site at $245,000 or $289 per sq m. Mr Tsikleas valued the subject land at $50,000 or $59 per sq m.

15 They arrived at these figures by taking comparative sales of land and buildings to establish a market value, and deducting an estimated figure for the value of the heritage item to produce a land value.

16 One method of arriving at the building value was to look at the capitalisation rate of the total property in order to establish its market value related to rental income less outgoings. This enabled an estimate of the component that the building contributed to the market value of the combined land and building. Deduction of the building component from the market value produced a residue amount that was put to me as the land value.

17 In establishing a value for the actual building the experts agreed a new building of modern design would cost about $1200 sq m. They agreed a copy of the heritage building, if lost in fire could cost as high as $3000 sq m. They agreed in oral evidence that the higher maintenance costs etc. of a heritage building, as allowed for in s 14G had to result in a depreciated value less than $1200 sq m for the “bricks and mortar”. They agreed a reasonable figure was $700 sq m as at the Base Date.

18 Mr Southgate said he had initially sought the Strata Title floor space to apply this to; it was 729.8 sq m and he regarded that as net lettable area. However, the information submitted had put the floor space at 878 sq m and he had been prepared to “adjust” the floor space to that calculation in Exhibit 1. This produced 878 sq m x $700 = $614,600, rounded to $615,000. His capitalization for the whole property of 8.5% had put its market value at $860,000. By subtraction, the land component became $245,000.

19 Mr Tsikleas had initially applied the same 878 sq m in Exhibit C, but at the hearing he said the usual building cost-estimate process applied it to the footprint of the building on each floor level, including walls etc. A replacement page in Exhibit B applied it to the gross floor area from a survey in Exhibit A that found 927.9 sq m including walls, verandahs and covered spaces. This produced 927.9 sq m x $700 = $649,530, rounded to $650,000. His capitalization for the whole property of 10.5% had put its market value at $700,000. By subtraction, the land content became $50,000.

20 Mr Southgate agreed to the internal areas, but said the verandahs and covered spaces would be less than $700 sq m. He had “adjusted” the floor space to account for that on the basis of the net lettable being the income producing part of the building compared to the verandahs that are not.

21 Mr Tsikleas thinking appeared to be in estimating depreciated “bricks and mortar” value of the building it must be the whole of the building including the verandahs and covered spaces.

22 The applicant tendered a quote for preparation, repainting and roof washing of the building for $92,000. The applicant also tendered a fire safety inspection report that required another amount of work and installations to the building. There was no costing for the fire requirements. Although neither party took these any further into calculations, they are indicative of re-occurring maintenance costs.

23 It is apparent to me that the experts already agreed that a replacement value of the heritage item at $3000 sq m is not appropriate. So they are both estimating the value of the heritage building as a notional amount that is a component of the market value of the whole property. In that case a prospective purchaser would be concerned more with the potential income production of the building. The verandahs etc. may be attractive to some purchasers or seen as a maintenance liability by others. The on-site car parking would be an advantage, but neither has put a value on that, except to recognise its existence.

24 From Exhibit A on the subject site, an addition of the floor area including walls, but minus the verandahs and covered areas shows 848 sq m, so Mr Southgate’s adoption of 878 sq m still makes some allowance for more than just net lettable floor space.

25 In that event, Mr Southgate’s “adjustment” may be more appropriate than including the whole of the floor area. This gives some support to the evidence that $615,000 is an appropriate figure to use for the depreciated value of the building.

26 In regard to the comparable sales of heritage office buildings in Murwillumbah, I cannot accept they can assist in valuations in Lismore CBD. At best they could only confirm, in conjunction with similar sales conditions in Lismore, that the general market was falling, rising or static. Whilst there was some difference between the experts prior to the hearing they agreed in joint report the market was static at the Base Date of 1 July 2004. As a result, sales of comparable properties close to the Base Date did not need “adjustment” for general market movement.

27 An advantage of the evidence is the sale on 13 February 2004 of No. 186 Molesworth Street, Lismore, of another heritage item office building. This property is called Molesworth House. Its sale date is close to the Base Date.

28 Another sale of a heritage item retail and office building at 180 Molesworth Street may have been useful, but its sale was 28 June 2002, and the experts agreed the market had changed between then and the Base Date. How much to “adjust” the values became too unreliable in my opinion.

29 The other sales of non-heritage items I do not consider suitable for comparison except that they helped the valuers agree on a range of rates per sq m in the CBD for non-heritage item sites. This provided a scale and the valuers agreed the subject property should be less than its lowest figure of $300 sq m for land only, as noted above.

30 Turning to the capitalisation rates, I saw from Mr Tsikleas’ report in Exhibit C that he had actually calculated the Molesworth House land value as a loss of $24,000, that is a negative value.

31 He said this was defendable on the basis of applying the same depreciated rate of $700 sq m to the floor space of the heritage item on that site, and $300 sq m to the outbuildings. The buildings on the land calculated at $716,000 and the sale price had been $692,000 showing the loss of $24,000.

32 I find this difficult to accept, unless the income less outgoings for the property were also showing a loss, so that the buildings became a liability, not an asset. Obviously they are not. Mr Tsikleas is a part owner of Molesworth House and has many tenants giving full occupancy. His report said even when he bought the property with fewer tenants, it had a capitalisation rate of 4.27%, and he now achieves 10%. The land component of the valuation must be above zero.

33 In having the fixed known sale price of the property in 2004, it would seem the variables in the equation are the $700 sq m rate and the floor space area for the building component of the capitalization calculation. The floor space is a physically fixed area in an existing building, but as we have seen when the valuers agreed on $700 sq m, they have “adjusted” the floor space figure to achieve what each thinks is an appropriate depreciated value for the existing heritage building.

34 In the case of Molesworth House assuming the floor area is “unadjusted”, then the $700 sq m must be too high if it gives a negative value for the land component of the sale price.

35 In Mr Southgate’s report in Exhibit 1, he estimated the Molesworth House building component at $580 sq m of nett lettable floor space, or $330 sq m gross floor space (including walls, corridors etc) plus an “allowance” of $20,000 for the outbuildings. There are 18 car spaces on-site but there is no value put on them. That produces a capitalization rate of 9.1% in his calculation that is close to the actual rate achieved by the building as advised by Mr Tsikleas.

36 Since the valuers have agreed the $700 rate on the subject property, and I have no evidence to allow me to fix a more accurate figure, I can only conclude this provides further support that Mr Southgate’s “adjustment” on the subject property is more likely to be correct than Mr. Tsikleas. This provides further support for me to adopt $615,000 as the building component.

37 Mr Southgate in his report in Exhibit 1, and in the joint report in Exhibit 2 provided a table showing the known sales prices of various properties he considered to be comparable. In that table I have determined to consider only 186 Molesworth Street because it is the only appropriate comparable property and sale close to the Base Date.

38 In that table, he gives percentage “adjustments” for the differences between Molesworth House and the subject site on the following factors:

• Size of land
• Location in the CBD
• Availability of Services
• Topography
• Shape/Frontage
• Adjust for premiums paid
• Adjust for corner site

39 These adjustments led him to a per sq m rate of $290.22 for the subject site giving a land component for 847.3 sq m of approximately $245,000.

40 Mr Southgate’s percentage figures for each “adjustment” were, admittedly, based on his professional experience and the reasons he gave, but they were not seriously challenged in cross-examination.

41 Mr Tsikleas had no similar quantified “adjustments” and relied mainly on the capitalisation rate calculation minus the notional value of the heritage building.

42 The application of Maurici v Chief Commissioner of State Revenue [2003] 212 CLR 111 and AMP Henderson Global Investor Ltd v Valuer General [2004] 134 LGERA 426 would indicate Mr Southgate’s methods to be the more appropriate.

43 I have concluded overall that Mr. Southgate’s evidence must have the greater weight and be determinative. The respondent did not press for Mr Southgate’s valuation of $245,000, and was content to seek confirmation of the Valuer-General’s figure of $227,000. Given the obvious approximations brought about by the “adjustment” process, I am content the two figures are within the same range, and respondent’s submission is acceptable.

44 Therefore the Orders of the Court are:

1. The appeal is dismissed.

2. The Land Value of 22 Woodlark Street, Lismore, at the Base Date of 1 July 2004 is confirmed as $227,000 under s 14G of the Land & Valuation Act 1919 as amended.


3. The exhibits are returned to the parties except Exhibits 1, 2, A, B and C.

___________________
K G Hoffman
Commissioner of the Court
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